Apple to design power chips in-house as early as 2018: Sources

Frankfurt shares of current developer Dialog Semiconductor hit

CHENG TING-FANG, Nikkei staff writer

TAIPEI -- Apple is designing its own main power management chips for use in iPhones as early as in 2018, cutting dependence on Dialog Semiconductor, according to industry sources, as shares in the U.K. developer plunged as much as 19% in afternoon trade in Frankfurt.

Apple's long-term plans to cut dependence on suppliers to boost its semiconductor capabilities have been widely-flagged as it consolidates its production chain to better compete with its rivals. But these plans may have claimed a victim, with Dialog shares down 19.16% soon after these exclusive plans were revealed on Nikkei Asian Review. They were down 17.58% at 13:59GMT.

The main power management chip controls an iPhone's charging function, battery management, and energy consumption. "Based on Apple's current plan, they are set to replace partially, or around half of its power management chips to go into iPhones by itself starting next year," said the source.

Another person said Apple was indeed developing its own power management chips for iPhones but the time frame was less certain and could be delayed to 2019.

Apple's main power management chips for the iPhone, iPad and Apple Watch are now exclusively designed and made by Dialog, according to Credit Suisse. Apple accounted for 74% of Dialog's revenue in 2016. Power management chips are one of the most crucial and expensive components after core processors, modems and memory chips.

Apple is keen to boost production of its own semiconductors to better compete in emerging technologies such as artificial intelligence applications and reduce reliance on external chip designers.

By developing more of its own chips, Apple will also be in a better position to integrate software and hardware and to manufacture products that can be differentiated from those of its rivals such as Samsung Electronics and Huawei Technologies, according to analysts.

Apple's new in-house power management chip would be the most advanced in the industry, according to the sources, and could have processing capabilities that allow it to better monitor and control power consumption among various components. That means iPhone users could expect devices capable of delivering better performance on lower power consumption.

Such new chips will be solely manufactured by Taiwan Semiconductor Manufacturing Co., the world's largest contract chipmaker, according to the industry sources. TSMC has been Apple's sole supplier manufacturing core processor chips for iPhones since 2016. Currently Dialog's power management chips for Apple's iPhones are also made by TSMC.

In 2016, Apple was TSMC's No.1 customer, contributing 17% to the Taiwanese chipmaker's overall revenue. That contribution will grow to around 20% in 2017 and continue to rise in 2018, according to Bernstein Research.

The U.S. tech giant already designs its own core processors, a bionic neural engine chip to handle facial, image and speech recognition and other machine-learning algorithms. It also builds its own fingerprint chips, and a connection chip used in Airpods to allow seamless pairing with other Apple products with the wireless headphone.

Apple is also building its own graphic processor and will no longer use ones provided by Imagination Technologies in 15 months to two years' time, the British chip designer said in a statement in April.

That decision crushed Imagination as Apple was its no.1 customer that accounted for over half of its revenue. The British chip designer eventually sold itself to Canyon Bridge, a private equity investment fund backed by state-owned Chinese fund Yitai Capital, in September.

Dialog Semiconductor shares in Frankurt closed down 16% on April 11, following a note from private bank Bankhaus Lampe suggesting that Apple could cut back the use of the company's power management integrated circuits.

Dialog declined to comment directly on Apple's move but said in a statement: "The level of visibility into the design cycle of its leading customers remains unchanged and the business relationships are in line with the normal course of business."